State Residency for Tax Purposes – A Useful Guide: PillarWM
Tax planning is a major financial concern for high net worth and ultra-high net worth individuals as they have to pay a huge percentage of their wealth in taxes. One technique that many such individuals use to lower their tax burden is to move to a lower-tax state and change their state residency for tax purposes. Several southern states have no state income taxes, fewer property taxes, and better climate than northern states. If you have invested $5+ million and want to know how to save on taxes, you can do so by requesting a free copy of our new book,7 Secrets To High Net Worth Investment Management, Estate, Tax, and Financial Planning.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
If you want to discuss whether changing state residency for tax purposes is a good option for you, you can get in touch with our team at Pillar Wealth Management. Our financial services are fine-tuned to help individuals and families with $5 million to $500 million with tax planning and comprehensive financial planning. We know how crucial tax minimization is to preserve and secure your hard-earned wealth. Our advisors will devise a customized strategy for you that suits your unique financial background and requirements.
What Establishes Residency in A State?
If you relocate to a new state, it’s best to establish a legal residency or domicile in that state to avoid paying taxes in the state you moved out from.
Keep in mind that this can get complicated as every state has its own criteria to establish your residency. Thus, we recommend you speak to a knowledgeable advisor regarding tax state residency before you make any major, irreversible decisions.
Here is a list of things you can do to establish residency in a new state. These include:
• Changing your mailing address along with the address mentioned on your legal documents such as insurance policies, living trusts, passports, etc.
• Renting or purchasing a home in the new state and selling your property in the previous state.
• Setting up utilities in your new home.
• Tracking the number of days you spend in the new state versus the number of days you spent in the previous state. You have to spend more than half the year in the new state in order to establish residency.
• Getting a driver’s license or registering your automobile in the new state.
• Opening up active bank accounts in the new state and closing bank accounts in the old state.
• Registering to vote in the new state.
• Filing resident income tax return in your new state and filing a non-resident return in your previous state.
• Getting memberships in organizations or clubs in your new state.
After you establish your state residency, your previous state will not be able to claim you as a resident for tax purposes. If you need more clarity on the impact of taxes on your wealth, we recommend you speak to an expert in the field. Our wealth managers are here to help you with some effective and proven tax planning strategies. Click here to book your first consultation session.
After you have officially established your residency, you will have to prove it as well. Generally, your utility bill and driver’s license are sufficient for this task. But what do you do if you don’t have any utility bills?
How Can I Prove Residency Without Utilities?
Utility bills are commonly accepted as proof of residency. However, there are many times where you might not have these bills. For instance, you might be living with your parents or a roommate or rent a home that has utilities included.
On the other hand, you might be paying your utility bills digitally and might have signed up for paperless billing with your utility company. A lot of places may not be willing to accept a printed copy of a utility bill.
If you have to prove your residency immediately, this can lead you to trouble. Perhaps, you’re trying to get a loan at a low-interest rate or applying for a new job. You simply cannot wait for your utility provider to send you a statement in such time-sensitive situations.
Fortunately, you can prove your residency in a new state in several different ways, even if you don’t have any utility bills. Just make sure to check the list of verification documents that are accepted as every business or institution requires different things.
Apart from your driver’s license, you can use some other documents to certify your residency in a new state.
1. Financial Documents
Most financial documents, such as tax documents, credit card statements, and bank statements, are acceptable to prove your residency in a new state. You can simply print out a copy of these documents on your computer. However, if the organization requiring proof is unwilling to accept a printed copy, you will have to do some more work.
Visit a local branch of your bank and ask them to print out a statement. Don’t forget to inform them that you need the document for residency reasons. This way, you can get a document with your address on it.
If you do have some time, you can also call your credit card provider or your bank and ask them to mail you your statement. Otherwise, you can temporarily unsubscribe from paperless statements so that you get a physical copy via mail.
You can use copies of your state or federal income taxes if you have filed them already or your W-2s. All such documents should include your full name along with your new address. If you don’t have a copy of these documents, speak to your company regarding this.
In case your company cannot give you yourlost W-2, you can get in touch with the IRS directly and request a wage and income transcript. The transcript won’t have your local and state information, but it will include your name and address, which is essentially what you want.
Apart from that, you can pay a fee of $81 to the Social Security Administration and get a new copy of your W-2. If you are on a time constraint, this may or may not work for you.
3. Government or Court Documents
Correspondence from an official state, city, county, or government organization that includes your name and address can also work as proof of residency. Such documents can include letters from social security, marital records, and even correspondence from the DMV.
Make sure to fill out a change-of-address form at the Post Office if you have just moved. The US Postal Service will send you a confirmation letter containing your new address. However, you need to make sure that this letter will work as proof of residency.
4. Register to Voter
If your voter registration card includes your address, you can possibly use it to prove your residency. If you have moved to a new state, you will have to use your new address to register to vote. You will have to update the voter registration record anyway.
If your new card doesn’t have your address, you can perhaps use the envelope it came in.
5. Home-Related Paperwork
You can even use your declaration page or any other letter from your homeowner’s insurance company to prove your residency. For instance, you can use policies for flood insurance or other kinds of protection for your domicile.
Other than that, you can use a copy of your lease agreement or a mortgage statement as long it has your name on it. Or use a receipt for your latest real-estate or property taxes. Remember that these documents should be fairly recent and should have a date.
If you reside with someone else, you can ask them to fill out a residency affidavit form. Several financial institutions and government organizations will accept these documents. However, make sure to check with them first.
The organization might want you to use its own form. If not, you can easily get an acceptable form from the Internet.
If you live at your parent’s house, you can ask them to write and sign a letter stating that you still reside in their home. Your parents will also have to give their own residency proof.
Can You Be A Resident in Two States?
Yes, it is totally possible to be a resident in two states at the same time! However, it is quite rare.One of the most common of these situation entails someone whose domicile is established in one state, but who have been traveling to or working in another state for over 184 days. In such a situation, you can be a resident of two states.
In case you do have residency in two different states, you might be liable to double taxation, which can significantly increase your tax bill. Filing as a resident in two states needs to be avoided whenever possible. Bear in mind, the state in which you are a resident has the right to tax all of your wealth, irrespective of where you earned it.
One way to avoid double taxation is to file a non-resident return in the state where your business is located. This exempts you from being taxed in that state.
As an affluent investor, you want to secure your wealth, not lose a huge chunk to taxes each year. Order a free copy of our hardcover book, The Art of Protecting Ultra-High-Net-Worth Portfolios and Estates – Strategies for Families Worth $25 Million to $500 Million for more information on protecting your assets and wealth.
Is Changing State Residency for Tax Purposes Worth It?
Changing state residency is one of the many strategies that wealthy investors use to save on taxes. Many of these other strategies focus on enhancing your portfolio performance to grow your income at a lower tax rate. We discuss some of these strategies in our guide, Improving Portfolio Performance. If you are thinking of changing your state residency, you might wonder if it’s actually worth it to do so.
Well, in states with no income tax, commercial real estate is much more economic as compared to states with higher taxes. Thus, if you want to operate a business in the new state, you could save thousands of dollars. Coupled with lower living costs, you can effectively preserve more wealth.
Moving to a low-tax state might be great, especially for retirement, as you depend on your passive income generated by your investments to cover your expenses. If you keep sending huge sums to Uncle Sam, you will have to compromise your living standard. To learn more about this, request for a copy of our book, 7 Secrets to High Net Worth Investment Management, Estate, Tax, and Financial Planning – For Families With Liquid Investable Portfolios Between $5 Million and $500 Million.
Executing tax-saving strategies can be tricky if you aren’t properly experienced. To make sure you use the most effective tax-saving strategy, schedule a free meeting with us.
Risks of Changing State Residency for Tax Purposes
When it comes to your finances, you need to weigh out the risks of every decision to ensure financial success and stability. For instance, investments can carry high risks, which is why you should speak to an expert to determine your risks. In our guide here, we explore some ways you can enhance your portfolio performance.
In the same way, changing state residency can be risky too. For instance, IRS is conducting tax audits more frequently and is particularly interested in high net worth investors. The higher your net worth, the higher likelihood of you getting audited if you change your state residency.
Moreover, relocating to a state with a low tax rate doesn’t always mean that your tax burden will decline. Some states have a high property and sales tax to make up for low state income taxes. If you run an income-earning business in another state, you might be subject to dual taxation.
Consult with Pillar Wealth Management
Wealth managers at Pillar Wealth Management can expertly guide you on how to change state residency for tax purposes. Our team has six decades of experience helping wealthy individuals with tax planning.
If you have investable wealth worth $5 million to $500 million, you can surely benefit from working with us. We will guide you at every step to preserve your wealth in the best possible way. For more details, sign up for a free meeting with us today.
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